Home buying has more twists for doctors

A physician who wants to buy a home has much more to consider than price and location.

The high threat of lawsuits that many physicians face makes it necessary for them to pay close attention to titling and how they hold the home to keep it off-limits in litigation. These extra considerations plus the usual headaches of home buying -- getting the right lender, loan and more -- can be overwhelming and make the process feel like a full-time job.

Experts say following some basic advice can help avoid the small missteps that ruin deals.

"My No. 1 piece of advice is do not become emotional over the purchase of a home," said Robert Bernabe, head of retail mortgage lending for the online brokerage and banking business ETrade Financial Corp. He warned that getting too emotionally involved can lead a buyer to accept bad deals.

To keep a clear focus from the start, he recommends getting objective advice on the whole home-buying process from the Fannie Mae Foundation (link) or the U.S. Dept. of Housing and Urban Development (link). Their Web sites can help a buyer create a roadmap to stay on the right course, he said.

At the same time, buyers should investigate their credit and take time to fix any surprises that could cause a lender to become skittish, Bernabe said. Even small dings could derail a potential loan.

Once this preliminary research is done, it is time to start looking for a lender. Sid Davis, a real estate broker in Farmington, Utah, and author of A Survival Guide For Buying A Home, said colleagues and friends can be a good resource in identifying potential lenders. Realtors also know where to look, he said.

"After you decide on a lender, narrow it down to a few and have them run the numbers for you," Davis said.

The lenders will need to look at income and credit to determine the buyer's potential loan. They may need to see tax returns, pay stubs or other employment paperwork. Davis said running a credit report should be the only up-front cost associated with a loan.

With that information, the lender can then offer a good-faith estimate that breaks down the buyer's payment estimate, loan costs, all the fees associated with the loan and the annual percentage rate, which is the interest rate adjusted with closing costs added into it.

"With each lender you talk to, get a good-faith estimate and you can compare them cost by cost and line by line," Davis said.

The good-faith estimate will let the buyer know whether he or she pre-qualifies for a loan, which can be advantageous when negotiating with sellers. "It's going to make the sellers feel like they have a bird in the hand, and you can maybe negotiate a better price," Davis said.

Lenders will offer different types of loans, depending on the needs of the buyer. A jumbo loan is used for mortgages higher than $331,750, Bernabe said. They typically carry slightly higher interest rates than other loans and may require private mortgage insurance if the borrower's down payment is less than 20%.

To avoid jumbo-loan costs, some borrowers take out two loans and "piggyback" them on top of one another so neither loan is individually more than $331,750. Bernabe said the decision to do that should be based on considering the weighted average of the two rates and comparing that with a jumbo-loan scenario.

The loans are often set for terms of 15 or 30 years and may have a fixed or adjustable interest rate, depending on the buyer's needs and the rate environment. Bernabe said first-time buyers often choose longer loans because they are more concerned with the monthly payment than paying off the asset.

He said some buyers will choose to have a fixed mortgage with an adjustable rate mortgage that fluctuates with the market for part of the life of the loan, betting that the rates will be favorable in that period. "Of course you have the risk on the other side because it's adjustable."

Some mortgage companies sell the servicing of loans to third parties who then handle the receipt of loan payments. Mark Dennis, vice president of retail production for Colonial National Mortgage in Fort Worth, Texas, recommends seeking lenders who do their own servicing so "the borrowers can get used to the company and don't have to worry about payments getting messed up when services are sold."

With the right loan in hand, and a lead on the right home, the buyer is close to the finish line. But Diedre Wachbrit, an asset protection and estate planning attorney in Thousand Oaks, Calif., said buyers -- especially physicians -- need to consider a few final details before inking the deal.

Physicians need to consider asset protection whenever they acquire a major asset. "Physicians are exposed to tremendous amounts of professional liability, and there are perfectly legal ways to protect their assets to make sure that their families are going to be OK," she said.

That may involve putting the ownership of the home into a protective trust to shield it from claims in lawsuits. Or it may be as simple as naming a spouse the owner of the home.

"Putting it in the spouse's name will work in some states because the claim against the doctor will be recoverable only under jointly owned assets," she said. However, this can be a pitfall if the marriage is unstable.

An alternative in some states is holding the home as tenants in common. That means each spouse owns half of the asset separately so if the physician is sued the other half of the asset is still protected. Still, Wachbrit said most married couples opt for joint ownership on the title. "It just depends on your goals," she said.